Should I Depreciate or Amortize a Domain Name?

by Madison Garcia; Updated September 26, 2017

Under generally accepted accounting standards, businesses must depreciate fixed assets and amortize intangible assets. Because a domain name is not a physical asset, it never needs to be depreciated. However, certain domain names are considered intangible assets. These domain names need to be amortized or periodically written down to fair market value.

Intangible Assets Defined

Assets are items that add future economic value to a business. Assets can either be physical assets or intangible assets. Fixed assets are assets not held for resale, such as plant, property or equipment. Intangible assets are those you can't see or touch, but they have economic value. Typical intangible assets include copyrights, patents, trademarks and goodwill.

Domain Names as Intangible Assets

Whether a domain name is capitalized as an intangible asset depends on how much the business paid for it and how significant the domain name is to the value of the business. If a business purchases a domain name for a nominal amount of money -- $100 or $500, for example -- it can immediately expense the purchase. However, a business that buys a domain name that is significant to the business and pays more than $1,000 for it may choose to capitalize it as an intangible asset. Businesses that buy and sell domain names as their main business operations would classify the domain names as inventory rather than intangible assets.

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When to Amortize

Even if a business has a domain name that is an intangible asset, that doesn't mean it has to amortize the domain name. If the business expects the usefulness of the domain name to end at a certain time, it should amortize the domain name over its useful life. For example, say a company purchases a domain name for $10,000 and expects it to be useful for 10 years. The business would book an amortization expense journal entry of $1,000 once a year for 10 years. In contrast, the Internal Revenue Service requires all assets with a definite life to be amortized over 15 years regardless of their useful life.

When to Write Down

If a business expects to be able to continually renew a domain name and doesn't see an end to its usefulness, the domain name has an unlimited useful life. Generally accepted accounting principles instruct users to write down intangible assets with unlimited life rather than amortize them. At least once a year the business should evaluate the fair market value of the domain name. If the value of the domain name is less than its value on the books, the business should book a journal entry decreasing the value of the domain name to market value.